A business health check is never a bad idea and even if you’re doing okay, there are always ways to improve. It’s important to closely monitor your business’ “vital signs” and look for ways to fine-tune your processes to ensure that it continues to thrive. Let’s take a look at four ways to boost the financial health of your small business.
1. Identify New Streams of Revenue
Markets can shift rapidly, which means you should always keep an eye on how the landscape is evolving and look for new opportunities to capitalise upon. Identifying new streams of revenue can help to future-proof your business and increase your profits. Take a look at your current sources of revenue and identify which ones may deserve more of your attention. You should also give your employees a chance to offer their ideas on new ways to generate income.
If you’re struggling for inspiration, why not examine business owners who were forced to rapidly pivot during the covid-19 pandemic. Event photographers, for example, began selling digital prints and online courses. Restaurants switched to takeaway only and started offering special delivery packages for occasions such as Christmas and Valentine’s Day to boost sales.
2. Increase Profitability
Profitability is key to the longevity of a business and an important indicator of success. Therefore, you should always be thinking about ways to boost your margins. Adding revenue through new sources of income, raising your prices or increasing average customer spend is one way to do this.
However, it’s important to keep your costs as low as possible, too. Regularly review and remove expenses that don’t add value to your business or customer. Consider eliminating products or services that do not generate significant revenue or profit so that you can focus on the ones that really make you money.
Boosting your customer retention rate is another important way to increase profitability. Research shows that increasing customer retention by 5% can boost your profits by 25-95% because not only is retention significantly cheaper than acquisition, repeat customers also spend more.
3. Manage Cash Flow
Profitability is important, but cash flow matters just as much so don’t sacrifice one in favour of the other. Plenty of profitable businesses have gone bankrupt because their assets were tied up and they ran out of cash. It’s vital that you stay on top of your monthly incomings and outgoings to ensure that your business stays flush with funds.
Insight is the key to effective cash flow management. You must carefully keep track of all the money that enters and leaves your business. It’s important that you understand your days cash on hand – namely, the number of days you have until cash runs out. Ideally, you should have 45 days or more.
You can improve cash flow management by:
- Staying on top of your invoices
- Shortening payment cycles
- Introducing late payment fees
- Offering bulk or annual discounts
- Using a business credit card
- Carefully managing inventory
- Creating a cash reserve that you can dip into in case of emergency
4. Increase Productivity
Increasing productivity means that you can do more without spending more, and thus improve profitability. Research by Gallup found that highly engaged teams show 21% greater productivity, so it’s important to motivate your staff and ensure that they are working at their best.
89% of HR leaders agree that regular feedback is crucial to building a successful team, so prioritise regular check-ins and make your employees feel heard. Offering flexible working options can also be helpful to increase productivity as research shows that this makes staff feel appreciated. AirTasker also found that flexible workers put in an average of 1.4 extra days per month than traditional employees, which adds up to over 16 days, or three weeks, per year.
Summary
However well your business is doing, there are always ways to improve. Just as it’s important to check in with your employees regularly, it’s also important to schedule time to review your revenue, profitability, cash flow and productivity to eliminate potential problems and identify areas for improvement. This will ensure that your business stays financially healthy and continues to thrive for years to come.
